What Is a Collateral Free Loan

Collateral Free Loan

Majority of the small and medium enterprises (SMEs) find it pretty hard to avail a business loan. The primary reason for that is their inability to provide collateral. This leads to problems in the functioning of their enterprises wherein they are unable to fund their working capital requirements, expand their scale of operation and optimally grow their business. The government of India has taken steps to provide the necessary financing to these businesses. Apart from that, there are financial institutions who offer generic loan products to SMEs. These institutions, however, impose quite a stringent eligibility criteria which need to be fulfilled. Even if you make it through the eligibility process, you have to see through a tedious, lengthy loan approval process followed by a submission of collateral.

However, there are various Non-Banking Financial Companies (NBFCs)  which are providing cutting-edge, innovative products to make the process easier. Herein, they provide innovative products coupled with a user-friendly process which makes the process of availing a business loan much easier. The key aspect of the business loan which they provide is that they offer a Collateral Free Loans.

What is a collateral free loan?

A collateral-free business loan is a loan in which you do not have to submit any collateral against the loan amount that you borrow. Traditional banks and lenders often ask for collateral as they want the loan to be secure. However, NBFC with their flexibility does not ask the borrowers to submit a collateral.

How is collateral-free business loan beneficial?

Most of the SME entrepreneurs do not have a collateral which they can submit against the loan. Herein, a collateral free loan comes in beneficial for the entrepreneurs who are in need of a business loan. A collateral-free business loan can help them as follows:

  • Provision of finance: A collateral free loan makes it easier for an entrepreneur to avail business loan thereby providing him with the finance he/she needs.
  • Injected funding leads to innovation: Since the finance is adequate, enterprises can work towards innovating processes – from production to marketing. Most of this can be innovative with an adequate financial backup.
  • Purchase new machinery: Most of the enterprises suffer poor fate with regards to machinery, wherein it becomes obsolete or becomes a burden. In this case, an enterprise with the help of a collateral free loan can purchase new machinery.
  • Upgrade old machinery: There are machineries which are good but are underperforming as they have not been serviced. In this situation, a business loan can help you upgrade an old machinery.
  • Expand the scale of operation: Looking at a broad spectrum, a collateral free loan can help an entrepreneur to expand his/her scale of business.

What do you need to keep in mind while availing a collateral free loan?

Business Loan Product: When borrowing a collateral free loan, it is important that you select the best product in the market. A best loan product has more than one noteworthy feature – a combination of the higher loan amount, lower rate of interest and so on.

Lender Options: Various options are available to get small business loan without collateral. However, it is essential that you select a highly certified NBFC such as Bajaj Finserv.

Rate of interest: The Interest rate is crucial in a loan product. Regardless of how enticing a business loan seems, a higher interest rate is never beneficial for a borrower at the time of repayment.

Other features that you must look forward to include a line of credit, online access and pre-approved offers. Make sure you check all the available options before deciding upon one.

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